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Q&A: I Have Tons of Debt and Virtually No Income. What Are My Options?

Jessica writes: I’m a 23-year old undergraduate student with tons of debt that is all in collections. I only make $50 a month plus room and board as a residential assistant. I feel overwhelmed because I just can’t do anything about it right now. Do I have any options?

You’re in a tough spot all right. Collections agencies are merciless, will have no sympathy that you don’t have any income, and will make your life a living hell until your debts are resolved one way or another. Assuming the debts are unsecured (from credit cards), you have two options:

  • Find another source of income, negotiate with the collections agencies, and pay them off
  • Declare bankruptcy

Repaying your debts: Morally speaking, finding a way to repay your debts is preferable. Even if you can take a part time job nights or weekends to make an extra couple hundred a month, you may be able to use that keep the debt collectors at bay. Furthermore, I’d consider looking for additional income anyway to avoid going into anymore debt. A monthly income of $50 is hard to live on, even when your room and board is paid for.

The fact that your debts are in collections is bad in some ways, but good in others. It’s bad because these debts are marked as “in collections” on your credit report, which will hurt your ability to get new credit for years to come. The good news is: Collections agencies purchase your debt from your creditors for a fraction of the original amount. Therefore, they may agree to settle the debt for less than you originally owed. They won’t concede this easily, but if you are persistent in telling them you want to pay the debts, but are working with a very limited income, they may listen.

Bankruptcy: With your limited income, you’ll qualify for Chapter 7 bankruptcy, which will discharge your unsecured debts. It’s not free though: Expect to pay $300 to file the papers in federal court, and $1,000 or more in attorney’s fees. Plus, Chapter 7 bankruptcy can stay on your credit report for up to 10 years.

If you absolutely cannot find additional income, bankruptcy is probably the way to go. You’re young enough that you probably won’t lose many—if any—assets in the liquidation process and, if you get this debt and bankruptcy behind you now, your credit history will be clear again in your early thirties.

A note about student loans: Any federal student loans (such as Stafford or Perkins loans), will not be discharged in bankruptcy, and there are dire consequences for not repaying these debts. Defaulting on federal student loan will make you ineligible for federal benefits of any kind including social security, Medicare/Medicaid, and more.

As long as you’re still a student, these loans should be deferred (i.e., you don’t owe any payments). If you left school and went back, for example, you may have to let your lenders know so they can suspend the payments.

You’re in a sticky situation, but taking action on your debts in one way or the other is the right thing to do. Ignoring them will only create more headaches down the road. Good luck!

Published or updated on September 29, 2008

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


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  1. carol conway says:

    i owe sears an homedepot like 390 an targets like 290 sears is 1800 i am disabled an have no income yet im constently getting phone calls fron debt collectors but have no way of paying yet what do i do?

  2. Neal says:

    As a former RA (Resident Assistant) in college I can tell you that there is a near unlimited money making opportunity to be had on campus. First, get a better job! Okay you didn’t ask but my lord get real you are working 20 hours a week…lets be honest you could do this job in half of that with some effort as it mainly includes stuffing mail, walking the floors and covering the desk answering questions and phone calls.

    Even a pizza route on the four nights a week you are not on call can clear you $500 a month after expenses. There are tons of non-university jobs that can be done on campus if you have no vehicle….I sold magazines and cleared a few hundred dollars a month though for the life of me I can’t recall the name of the company.

    Later I worked as an Apple Student Representatives demoing computers and not only got paid but was rewarded with free gadgets including a low end laptop. A great company to work for I might add.

    Heck start an organization and sell breakfast taco’s to make money. The 2-4 hours a day can bring in some serious $$. My fraternity did this each day and we cleared $100 an hour easy four days a week. I think we bought a folding table, table cloth, carboard plates, a hot plate and a steamer and electrical cords. The tacos cost us less than half what we sold them for and when we ran out we packed up.

    My point is don’t think of your RA job as THE job as it leads no where. Think of it as free room and board and LOTS of time to pursue other opportunities!

  3. Cat says:

    Dept Help!

  4. Meg says:

    Do you have any family member (like a parent) whom you can ask for help or for a loan?

    Also, you should be able to make more than $50 a week doing a variety of jobs – waiting tables, working on campus, retail, whatever. If you’ve got loans in collections you need to get some income and set up a payment plan NOW.

    Also, consider how much your debts are. If you’re talking about less than $1000 of debt, beg borrow and steal (figuratively speaking) and get it paid off. It’s not worth ruining your record and filing bankruptcy. If we’re talking $50,000 of debt, that’s a different story; bankruptcy might be worth it for a clean start. Weigh the consequences.

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